Old Second Bancorp : Reports Fourth Quarter 2021 Financial Results - Form 8-K

Published: 2022-01-26 16:34:50 ET OSBC

Old Second Bancorp, Inc. Reports Fourth Quarter 2021 Financial Results

AURORA, IL, January 26, 2022 - Old Second Bancorp, Inc. (the "Company," "Old Second," "we," "us," and "our") (NASDAQ: OSBC), the parent company of Old Second National Bank (the "Bank"), today announced financial results for the fourth quarter of 2021. We had a net loss of $9.1 million, or $0.26per diluted share, for the fourth quarter of 2021, compared to net income of $8.4 million, or $0.29 per diluted share, for the third quarter of 2021, and net income of $8.0 million, or $0.27 per diluted share, for the fourth quarter of 2020. Adjusted net income, which excludes acquisition-related costs and provision for credit loss adjustments stemming from our acquisition of West Suburban Bancorp, Inc. ("West Suburban") on December 1, 2021, a non-GAAP financial measure, was $12.5 million, or $0.36 per diluted share, for the fourth quarter of 2021. See the discussion entitled "Non-GAAP Presentations" below and the table on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

In addition to pre-tax acquisition-related costs of $12.8 million, the fourth quarter of 2021 also included acquisition-related adjustments that impacted our provision for credit losses. The fourth quarter 2021 provision for credit losses was $12.3 million, which included a $12.2 million Day Two adjustment to provision for credit losses on loans due to the inclusion of the lifetime estimated credit losses on non-purchase credit deteriorated ("PCD") loans, and a $2.4 million Day Two provision for unfunded commitments, net of a $2.3 million reversal of the allowance for credit losses in the fourth quarter of 2021 stemming from the impact of an improved forecast related to future credit losses and economic conditions. This compares to a $1.5 million release of provision for credit losses for the third quarter of 2021, and no provision expense or release of provision expense for the fourth quarter of 2020. The reduction to net income in the fourth quarter of 2021 was partially offset by growth in net interest income, due to a full month of West Suburban loan and securities income included in the fourth quarter of 2021, net of interest expense on acquired deposits.

Operating Results

President and Chief Executive Officer Jim Eccher said "We are pleased to deliver solid overall core results that represent a strong beginning to what we believe will be a very important and transformational year for Old Second. We are very encouraged about the trends and momentum in our businesses including strong loan growth, encouraging pipelines and improving levels of activity within our customer base."

Eccher continued, "We are extremely excited to welcome the customers and employees of West Suburban Bancorp. We are making solid progress on the integration of the two companies and continue to believe the combination will deliver value to our stockholders with significant improvements in core profitability as redundancies are eliminated. We believe our initial estimates at the announcement of the transaction appear to be reasonable, and perhaps conservative, as our teams continue to make progress on systems conversions and operational planning. The additional scale has provided the capability to prioritize growth investments and we were pleased to welcome several new additions to our lending team in our leasing and real estate verticals. We also recently announced the creation of O2 Sponsor Finance led by a highly experienced and successful lending team with a long track record in providing senior cash flow facilities to private equity sponsors.

"Looking forward, I am optimistic on loan growth trends in the near term and extremely excited on what we believe we can do over the intermediate term. The continuing deployment of excess liquidity on the balance sheet, improving loan growth and the prospect of higher rates offer the potential for expanding margins and the opportunity for the strength of Old Second's deposit base to shine. We are excited for the future and have the resources and momentum to focus on growth and technology enhancement and building a better Old Second for our stockholders and communities."

COVID-19 Update

We continued to face branch disruptions due to labor shortages and COVID-19-related closures in the fourth quarter of 2021. We assess customer needs daily, and announce any temporary branch closures internally for staff as well as with signage for customers. Our branch rationalization strategy, discussed above, is in process and we have notified all required regulatory agencies of any final branch closure determinations.

Capital Ratios

Minimum Capital

Well Capitalized

Adequacy with

Under Prompt

Capital Conservation

Corrective Action

December 31,

September 30,

December 31,

Buffer, if applicable1

Provisions2

2021

2020

The Company

Common equity tier 1 capital ratio

7.00

N/A

9.46

12.99

11.94

Total risk-based capital ratio

10.50

N/A

12.55

17.80

14.26

Tier 1 risk-based capital ratio

8.50

N/A

10.06

14.10

13.01

Tier 1 leverage ratio

4.00

N/A

7.81

9.81

10.21

The Bank

Common equity tier 1 capital ratio

7.00

6.50

12.41

15.65

13.75

Total risk-based capital ratio

10.50

10.00

13.46

16.69

15.00

Tier 1 risk-based capital ratio

8.50

8.00

12.41

15.65

13.75

Tier 1 leverage ratio

4.00

5.00

9.58

10.83

10.74

1Amounts are shown inclusive of a capital conservation buffer of 2.50%.

2 The prompt corrective action provisions are only applicable at the Bank level.

The ratios shown above exceed levels required to be considered "well capitalized."

Asset Quality & Earning Assets

Net Interest Income

Analysis of Average Balances,

Tax Equivalent Income / Expense and Rates

(Dollars in thousands - unaudited)

Quarters Ended

December 31, 2021

September 30, 2021

December 31, 2020

Average

Income /

Rate

Average

Income /

Rate

Average

Income /

Rate

Balance

Expense

Balance

Expense

Balance

Expense

Assets

Interest earning deposits with financial institutions

587,721

224

0.15

523,561

203

0.15

275,087

0.11

Securities:

Taxable

842,576

2,817

1.33

476,935

1,835

1.53

288,089

1,458

2.01

Non-taxable (TE)1

189,697

1,674

3.50

186,515

1,627

3.46

193,859

1,637

3.36

Total securities (TE)1

1,032,273

4,491

1.73

663,450

3,462

2.07

481,948

3,095

2.55

Dividends from FHLBC and FRBC

11,042

114

4.10

9,917

114

4.56

9,917

118

4.73

Loans and loans held-for-sale1, 2

2,393,017

26,368

4.37

1,889,696

21,358

4.48

2,032,741

23,067

4.51

Total interest earning assets

4,024,053

31,197

3.08

3,086,624

25,137

3.23

2,799,693

26,353

3.74

Cash and due from banks

34,225

29,760

30,086

Allowance for credit losses on loans

(34,567)

(28,639)

(33,255)

Other noninterest bearing assets

287,762

185,415

192,421

Total assets

4,311,473

3,273,160

2,988,945

Liabilities and Stockholders' Equity

NOW accounts

567,971

0.06

534,056

0.07

474,470

0.08

Money market accounts

611,632

142

0.09

355,651

0.07

317,780

0.11

Savings accounts

918,835

0.03

451,829

0.04

391,904

0.07

Time deposits

370,919

271

0.29

331,482

330

0.39

393,297

741

0.75

Interest bearing deposits

2,469,357

566

0.09

1,673,018

539

0.13

1,577,451

991

0.25

Securities sold under repurchase agreements

47,571

0.13

46,339

0.13

67,059

0.21

Other short-term borrowings

5,448

0.88

Junior subordinated debentures

25,773

283

4.36

25,773

286

4.40

25,773

283

4.37

Subordinated debentures

59,201

546

3.66

59,180

547

3.67

44,363

673

Senior notes

44,468

673

6.00

44,441

673

6.01

Notes payable and other borrowings

20,090

107

2.11

21,171

113

2.12

24,407

135

2.20

Total interest bearing liabilities

2,666,460

2,190

0.33

1,869,922

2,173

0.46

1,744,501

2,129

0.33

Noninterest bearing deposits

1,193,387

1,029,705

903,383

Other liabilities

68,314

53,370

39,281

Stockholders' equity

383,312

320,163

301,780

Total liabilities and stockholders' equity

4,311,473

3,273,160

2,988,945

Net interest income (GAAP)

28,649

22,618

23,877

Net interest margin (GAAP)

2.82

2.91

3.39

Net interest income (TE)1

29,007

22,964

24,224

Net interest margin (TE)1

2.86

2.95

3.44

Core net interest margin (TE - excluding PPP loans)1

2.84

2.85

3.32

Interest bearing liabilities to earning assets

66.26

60.58

62.31

1 Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2021 and 2020. See the discussion entitled "Non-GAAP Presentations" below and the table on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

2Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure as discussed in the table on page 17, and includes fees of $1.4 million, $1.8 million, and $2.3 million for the fourth quarter of 2021, the third quarter of 2021, and the fourth quarter of 2020, respectively. Nonaccrual loans are included in the above stated average balances.

Net interest income (TE) was $29.0 million for the fourth quarter of 2021, which reflects an increase of $6.0 million compared to the third quarter of 2021, and an increase of $4.8 million compared to the fourth quarter of 2021. The tax equivalent adjustment for the fourth quarter of 2021 was $358,000, compared to $346,000 for the third quarter of 2021, and $347,000 for the fourth quarter of 2020. Average interest earning assets increased $937.4 million to $4.02 billion for the fourth quarter of 2021, compared to the third quarter of 2021, and increased $1.22 billion in the fourth quarter of 2021, compared to the fourth quarter of 2020; both of these increases were primarily due to the West Suburban acquisition, as well as growth in interest earning deposits with financial institutions, taxable securities available-for-sale, and loans outside of the merger. Average loans, including loans held-for-sale, increased $503.3 million for the fourth quarter of 2021, compared to the third quarter of 2021, and increased $360.3 million compared to the fourth quarter of 2020. The yield on loans for the fourth quarter of 2021, compared to the third quarter of 2021, decreased 11 basis points, primarily because the yield on acquired loans is lower.

Growth in the average balance of securities for the fourth quarter of 2021, compared to the third quarter of 2021 and the fourth quarter of 2020, partially offset the decline in yields which resulted in an increase of $1.0 million in tax-equivalent interest income on securities compared to the third quarter of 2021, and an increase of $1.4 million in tax-equivalent interest income from the fourth quarter of 2020. The average yield on the total securities available-for-sale portfolio declined 82 basis points year over year. Securities acquired with the West Suburban acquisition totaled $1.07 billion and security purchases totaled $533.9 million in the fourth quarter of 2021, which were partially offset by sales of $570.8 million and paydowns, calls, and maturities of $46.9 million. Our overall yield on tax equivalent municipal securities was 3.50% for the fourth quarter of 2021, compared to 3.46% for the third quarter of 2021 and 3.36% for the fourth quarter of 2020.

The yield on average earning assets decreased 15 basis point in the fourth quarter of 2021, compared to the third quarter of 2021, and decreased 66 basis points compared to the fourth quarter of 2020, due to a higher amount of earning assets held in interest bearing deposits with financial institutions, which had an average yield of 15 basis points in the fourth quarter of 2021. The lowering of interest rates by the Federal Reserve in the first quarter of 2020 in response to the COVID-19 pandemic has resulted in the reduction of rates on many earning assets, resulting in fewer alternatives for higher-yielding investments, as well as a general market trend for depositors to hold cash in more liquid interest bearing deposit accounts.

Average interest bearing liabilities increased $796.5 million in the fourth quarter of 2021, compared to the third quarter of 2021, primarily driven by a $796.3 million increase in interest bearing deposits. Average interest bearing liabilities increased $922.0 million in the fourth quarter of 2021, compared to the fourth quarter of 2020, primarily driven by an $891.9 million increase in interest bearing deposits and a $59.2 million increase in subordinated debentures. Both the linked quarter and year over year quarter increases were primarily due to the West Suburban acquisition, as well as continued deposit growth of our legacy customers. The cost of interest bearing liabilities for the fourth quarter of 2021 decreased 13 basis points from the third quarter of 2021, and decreased 16 basis points from the fourth quarter of 2020. Growth in our average noninterest bearing demand deposits of $290.0 million in the year over year period has assisted us in controlling our cost of funds stemming from average interest bearing deposits and borrowings; cost of funds totaled 0.23% for the fourth quarter of 2021, 0.30% for the third quarter of 2021, and 0.32% for the third quarter of 2020.

In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we sold and issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the "Notes"). The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears. From April 15, 2026 forward, the interest rate on the Notes will generally reset quarterly to a rate equal to Three-Month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears. The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole are in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events.

Our net interest margin (GAAP) decreased nine basis points to 2.82% for the fourth quarter of 2021, compared to 2.91% for the third quarter of 2021, and decreased 57 basis points compared to 3.39% for the fourth quarter of 2020. Our net interest margin (TE) decreased nine basis points to 2.86% for the fourth quarter of 2021, compared to 2.95% for the third quarter of 2021, and decreased 58 basis points compared to 3.44% for the fourth quarter of 2020. Our core net interest margin (TE), a non-GAAP financial measure that excludes the impact of our PPP loans, was 2.84% for the fourth quarter of 2021, compared to 2.85% for the third quarter of 2021 and 3.32% for the fourth quarter of 2020. The reductions year over year were due primarily to the lower level of market interest rates over the majority of the past twelve months, the related rate resets on loans and securities during the past year, and the increase in liquidity on the balance sheet. See the discussion entitled "Non-GAAP Presentations" and the table on page 18 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest Income

4th Quarter 2021

Noninterest Income

Three Months Ended

Percent Change From

(Dollars in thousands)

December 31,

September 30,

December 31,

September 30,

December 31,

2021

2020

2021

2020

Wealth management

2,421

2,372

2,112

2.1

14.6

Service charges on deposits

1,624

1,368

1,344

18.7

20.8

Residential mortgage banking revenue

Secondary mortgage fees

210

240

387

(12.5)

(45.7)

Mortgage servicing rights mark to market (loss)

1,463

(282)

(1,260)

(618.8)

(216.1)

Mortgage servicing income

534

572

503

(6.6)

6.2

Net gain on sales of mortgage loans

1,498

2,186

3,396

(31.5)

(55.9)

Total residential mortgage banking revenue

3,705

2,716

3,026

36.4

22.4

Securities (losses) gains, net

(14)

244

N/M

Change in cash surrender value of BOLI

227

406

291

(44.1)

(22.0)

Card related income

1,579

1,624

1,435

(2.8)

10.0

Other income

1,129

610

577

85.1

95.7

Total noninterest income

10,671

9,340

8,785

14.3

21.5

N/M - Not meaningful.

Noninterest income increased $1.3 million, or 14.3%, in the fourth quarter of 2021, compared to the third quarter of 2021, and increased $1.9 million, or 21.5%, compared to the fourth quarter of 2020. The increase from the linked quarter was primarily driven by a $989,000 increase in residential mortgage banking revenue, attributable to a $1.7 million increase in mark to market gain on MSRs stemming from market interest rate changes, partially offset by a $688,000 decrease in net gain on sales of mortgage loans in the fourth quarter of 2021, compared to the third quarter of 2021. In addition, we had increases in wealth management fees of $49,000 and service charges on deposit accounts of $256,000 in the fourth quarter of 2021, as compared to the linked quarter, which were partially offset by net losses on security sales of $14,000 in the fourth quarter of 2021, compared to net gains on security sales of $244,000 in the third quarter of 2021.

The increase in noninterest income in the fourth quarter of 2021, compared to the fourth quarter of 2020, is primarily due to a $679,000 increase in residential mortgage banking revenue, primarily comprised of a $2.7 million increase in mark to market gain on MSRs, partially offset by a $1.9 million decrease in net gain on sales of mortgage loans. Also contributing to the increase in noninterest income in the fourth quarter of 2021, compared to the fourth quarter of 2020, were increases in wealth management fees of $309,000, service charges on deposits of $280,000, and card related income of $144,000. The increase in card related income in the fourth quarter of 2021 primarily resulted from reductions in COVID-19-related restrictions and the resultant increase in consumer spending.

Noninterest Expense

4th Quarter 2021

Noninterest Expense

Three Months Ended

Percent Change From

(Dollars in thousands)

December 31,

September 30,

December 31,

September 30,

December 31,

2021

2020

2021

2020

Salaries

14,164

9,630

9,978

47.1

42.0

Officers incentive

1,293

1,212

680

6.7

90.1

Benefits and other

2,868

2,122

2,043

35.2

40.4

Total salaries and employee benefits

18,325

12,964

12,701

41.4

44.3

Occupancy, furniture and equipment expense

6,395

2,418

2,259

164.5

183.1

Computer and data processing

3,859

1,477

1,335

161.3

189.1

FDIC insurance

371

211

194

75.8

91.2

General bank insurance

360

301

266

19.6

35.3

Amortization of core deposit intangible asset

296

113

120

161.9

146.7

Advertising expense

107

(24.3)

15.7

Card related expense

657

662

583

(0.8)

12.7

Legal fees

460

455

285

1.1

61.4

Other real estate owned expense, net

171

146

584.0

17.1

Other expense

7,558

3,396

3,294

122.6

129.4

Total noninterest expense

38,533

22,129

21,253

74.1

81.3

Efficiency ratio (GAAP)1

100.51

68.73

61.87

Adjusted efficiency ratio (non-GAAP)2

66.08

66.46

61.10

1 The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income and total noninterest income less any BOLI death benefit recorded, net gains or losses on securities and mark to market gains or losses on MSRs.

2 The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities and mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled "Non-GAAP Presentations" below and the table on page 17 that provides a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the fourth quarter of 2021 increased $16.4 million, or 74.1%, compared to the third quarter of 2021, and increased $17.3 million, or 81.3%, compared to the fourth quarter of 2020. The linked quarter increase is primarily attributable to a $5.4 million increase in salaries and employee benefits, a $4.0 million increase in occupancy, furniture, and equipment, a $2.4 million increase in computer and data processing expense, and a $4.2 million increase in other expense. These increases were primarily attributable to merger-related costs incurred related to our acquisition of West Suburban. The increase in occupancy, furniture and equipment expense was primarily due to $3.8 million of branch write-downs in the fourth quarter of 2021, based on our deployment of a branch rationalization strategy following the merger. Finally, the increase in other expense was due primarily to growth in consulting fees of $3.0 million and legal fees of $100,000, which were both due to acquisition-related costs in the fourth quarter of 2021.

The year over year increase in noninterest expense is primarily attributable to a $5.6 million increase in salaries and employee benefits, a $4.1 million increase in occupancy, furniture and equipment, a $2.5 million increase in computer and data processing expense and a $4.3 million increase in other expense. Officer incentive compensation increased $613,000 in the fourth quarter of 2021, compared to the fourth quarter of 2020, as incentive accruals in 2021 were at a higher rate than the prior year. Employee benefits expense increased $825,000 in the fourth quarter of 2021, compared to the fourth quarter of 2020, due to increases stemming from additional employees from our acquisition of West Suburban and increases in employee insurance costs as more employees returned to more routine medical appointments, many of which were on hold during the first year of the COVID-19 pandemic. The increases in occupancy, furniture and equipment expense were primarily due to $3.8 million of branch write-downs in the fourth quarter of 2021, based on our deployment of a branch rationalization strategy following the merger. Finally, the increase in other expense was due primarily to growth in consulting fees of $3.0 million and legal fees of $100,000, which were both due to acquisition-related costs in the fourth quarter of 2021.

Earning Assets

December 31, 2021

Loans

As of

Percent Change From

(dollars in thousands)

December 31,

September 30,

December 31,

September 30,

December 31,

2021

2020

2021

2020

Commercial

770,037

321,548

407,159

139.5

89.1

Leases

158,231

162,444

141,601

(2.6)

11.7

Commercial real estate - Investor

957,376

535,506

582,042

78.8

64.5

Commercial real estate - Owner occupied

573,631

330,648

333,070

73.5

72.2

Construction

206,132

108,690

98,486

89.7

109.3

Residential real estate - Investor

62,843

45,497

56,137

38.1

11.9

Residential real estate - Owner occupied

213,859

108,343

116,388

97.4

83.7

Multifamily

309,194

160,798

189,040

92.3

63.6

HELOC

115,641

69,651

80,908

66.0

42.9

HELOC - Purchased

10,626

12,370

19,487

(14.1)

(45.5)

Other1

44,378

12,447

10,533

256.5

321.3

Total loans

3,421,948

1,867,942

2,034,851

83.2

68.2

1 Other class includes consumer and overdrafts.

Total loans increased by $1.55 billion at December 31, 2021, compared to September 30, 2021, and increased $1.39 billion for the year over year period. Loan growth of $1.50 billion was driven by the acquisition of West Suburban, as well as originated loan growth of $81.6 million, excluding PPP loans. During the fourth quarter of 2021, $29.7 million of PPP loans were forgiven. As required by CECL, the balance (or amortized cost basis) of purchase credit deteriorated loans ("PCD" loans) acquired in our acquisitions are carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses.

December 31, 2021

Securities

As of

Percent Change From

(dollars in thousands)

December 31,

September 30,

December 31,

September 30,

December 31,

2021

2020

2021

2020

Securities available-for-sale, at fair value

U.S. Treasury

202,339

4,070

4,117

4,871.5

4,814.7

U.S. government agencies

61,888

33,575

6,657

84.3

829.7

U.S. government agency mortgage-backed

172,302

17,818

17,209

867.0

901.2

States and political subdivisions

256,465

238,952

249,259

7.3

2.9

Corporate bonds

9,887

4,992

98.1

Collateralized mortgage obligations

672,967

165,414

56,585

306.8

1,089.3

Asset-backed securities

236,877

189,338

131,818

25.1

79.7

Collateralized loan obligations

79,763

61,029

30,533

30.7

161.2

Total securities available-for-sale

1,692,488

715,188

496,178

136.6

241.1

Our securities portfolio totaled $1.69 billion as of December 31, 2021, an increase of $977.3 million from $715.2 million as of September 30, 2021, and an increase of $1.20 billion from December 31, 2020. The increase in the portfolio during the fourth quarter of 2021, compared to the prior quarter, was driven by $1.07 billion of securities acquired in our acquisition of West Suburban, less sales of $570.5 million, the majority of which occurred immediately after the merger to reposition our portfolio into higher credit quality, lower duration issuances. In addition, we made $533.9 million of purchases in the fourth quarter of 2021, primarily of U.S. government treasuries, collateralized mortgage obligations, and asset-backed securities. The increase in the securities portfolio in the year over year period was primarily due to our acquisition of West Suburban, as well as $886.1 million of purchases in the last twelve months to utilize our excess cash on hand. We recorded security sales of $533.9 million in the fourth quarter of 2021, $26.9 million in the third quarter of 2021, and no security sales were made in the fourth quarter of 2020.

Asset Quality

December 31, 2021

Nonperforming assets

As of

Percent Change From

(dollars in thousands)

December 31,

September 30,

December 31,

September 30,

December 31,

2021

2020

2021

2020

Nonaccrual loans

41,531

27,520

22,280

50.9

86.4

Performing troubled debt restructured loans accruing interest

199

331

(87.4)

(92.4)

Loans past due 90 days or more and still accruing interest

3,110

1,233

434

152.2

616.6

Total nonperforming loans

44,666

28,952

23,045

54.3

93.8

Other real estate owned

2,356

1,912

2,474

23.2

(4.8)

Total nonperforming assets

47,022

30,864

25,519

52.4

84.3

30-89 days past due loans and still accruing interest

10,679

2,829

11,326

Nonaccrual loans to total loans

1.2

1.5

1.1

Nonperforming loans to total loans

1.3

1.5

1.1

Nonperforming assets to total loans plus OREO

1.4

1.7

1.3

Purchased credit-deteriorated loans to total loans

0.1

0.5

Allowance for credit losses

44,281

26,949

33,855

Allowance for credit losses to total loans

1.3

1.4

1.7

Allowance for credit losses to nonaccrual loans

106.6

97.9

152.0

Nonperforming loans consist of nonaccrual loans, performing troubled debt restructured loans accruing interest and loans 90 days or more past due and still accruing interest. Our adoption of ASU 2016-13, Current Expected Credit Losses ("CECL") on January 1, 2020, resulted in a change in the accounting for purchased credit impaired ("PCI") loans, which are now considered purchased credit deteriorated ("PCD") loans under CECL. PCD loans acquired in our acquisitions of West Suburban Bank and ABC Bank totaled $98.7 million, net of purchase accounting adjustments, at December 31, 2021. PCD loans that meet the definition of nonperforming loans are now included in our nonperforming disclosures. Nonperforming loans to total loans was 1.2% for the fourth quarter of 2021, 1.5% for the third quarter of 2021, and 1.1% for the fourth quarter of 2020. Nonperforming assets to total loans plus OREO was 1.4% for the fourth quarter of 2021, and 1.7% for third quarter of 2021 and 1.3% for the fourth quarter of 2020, as two large credits previously in nonaccrual were charged off in the fourth quarter of 2021. Our allowance for credit losses to total loans was 1.3% as of December 31, 2021, 1.4% as of December 31, 2021 and 1.7% as of December 31, 2020.

The following table shows classified loans by segment, which include nonaccrual loans, performing troubled debt restructurings, PCD loans if the risk rating so indicates, and all other loans considered substandard, for the following periods.

December 31, 2021

Classified loans

As of

Percent Change From

(dollars in thousands)

December 31,

September 30,

December 31,

September 30,

December 31,

2021

2020

2021

2020

Commercial

32,719

467

2,679

N/M

Leases

3,475

4,423

3,222

(21.4)

7.9

Commercial real estate - Investor

10,668

8,718

5,117

22.4

108.5

Commercial real estate - Owner occupied

15,429

7,211

11,187

114.0

37.9

Construction

2,103

4,898

5,192

(57.1)

(59.5)

Residential real estate - Investor

1,265

1,154

1,516

9.6

(16.6)

Residential real estate - Owner occupied

4,910

4,508

4,040

8.9

21.5

Multifamily

2,278

2,327

7,558

(2.1)

(69.9)

HELOC

1,181

1,034

1,540

14.2

(23.3)

HELOC - Purchased

180

181

(0.6)

Other1

278

N/M

Total classified loans

74,486

34,923

42,055

113.3

77.1

1 Other class includes consumer and overdrafts.

N/M - Not meaningful.

Increases in classified loans noted for the fourth quarter of 2021, compared to the third quarter of 2021 and fourth quarter of 2020, were driven by our acquisition of West Suburban and the resultant increase in total loans.

Allowance for Credit Losses on Loans and Unfunded Commitments

At December 31, 2021, our allowance for credit losses ("ACL") on loans totaled $44.3 million, and our ACL on unfunded commitments, included in other liabilities, totaled $6.2 million. The increase in our ACL on loans at December 31, 2021, compared to September 30, 2021, was primarily due to the acquisition-related Day One purchase accounting credit mark of $12.4 million, and a $12.3 million Day Two provision related to the future estimated lifetime credit losses on non-PCD loans. These increases to the ACL were partially offset by $4.7 million of net charge-offs recorded during the quarter, and a release of the ACL on loans of $2.3 million based on updates to our loss forecasts primarily stemming from a more favorable unemployment projection and continued updates to our loss rate forecasts. The $2.3 million release of provision expense in the fourth quarter of 2021 was an increase from the $1.5 million release of provision expense in the third quarter of 2021. The increase in our ACL on unfunded commitments at December 31, 2021, compared to September 30, 2021, was driven by a $1.7 million acquisition-related Day One purchase accounting credit mark, which will be accreted over the life of the commitments, and a $2.3 million Day Two provision for credit losses, partially offset by the $49,000 release of provision expense in the fourth quarter of 2021 due to adjustments in our funding rate assumptions based on our analysis of the last 12 months of utilization. Our ACL on loans to total loans was 1.3% as of December 31, 2021, compared to 1.4% as of September 30, 2021, and 1.7% as of December 31, 2020. The ACL on unfunded commitments totaled $6.2 million as of December 31, 2021, $2.2 million as of September 30, 2021, and $3.0 million as of December 31, 2020.

Net Charge-off Summary

Loan Charge-offs, net of recoveries

Quarters Ended

(dollars in thousands)

December 31,

% of

September 30,

% of

December 31,

% of

2021

Total 2

2021

Total 2

2020

Total 2

Commercial

441

9.3

(2)

(0.8)

(93)

(169.1)

Leases

0.8

1.7

(11)

(20.0)

Commercial real estate - Investor

2,603

55.1

35.0

471

856.4

Commercial real estate - Owner occupied

1,748

37.0

(2)

(0.8)

156.4

Construction

(171)

(310.9)

Residential real estate - Investor

(8)

(0.2)

(7)

(3.0)

(12)

(21.8)

Residential real estate - Owner occupied

(30)

(0.6)

(18)

(7.6)

(130)

(236.4)

Multifamily

183

77.2

HELOC

(105)

(2.2)

(28)

(11.8)

(97)

(176.4)

HELOC - Purchased

Other 1

0.8

10.1

21.8

Net charge-offs / (recoveries)

4,724

100.0

237

100.0

1 Other class includes consumer and overdrafts.

2Represents the percentage of net charge-offs attributable to each category of loans.

Gross charge-offs for the fourth quarter of 2021 were $5.2 million, compared to $369,000 for the third quarter of 2021, and $810,000 for the fourth quarter of 2020. Gross recoveries were $497,000 for the fourth quarter of 2021, compared to $132,000 for the third quarter of 2021 and $755,000 for the fourth quarter of 2020. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $5.47 billion at December 31, 2021, an increase of $2.75 billion compared to September 30, 2021, primarily due to $2.70 billion of deposits acquired in the West Suburban acquisition. Total deposits increased $2.93 billion in the year over year period driven primarily by the West Suburban acquisition, as well as growth in our demand deposits of $137.3 million, and savings, NOW and money market accounts of $222.1 million, partially offset by a decrease in time deposits of $131.9 million.

Borrowings

As of December 31, 2021 and 2020, we had no other short-term borrowings, primarily due to the growth in deposits and resultant decline of our need for short-term funding.

We were indebted on senior notes totaling $44.5 million, net of deferred issuance costs, as of December 31, 2021. We were also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, which is related to the trust preferred securities issued by our statutory trust subsidiary, Old Second Capital Trust II. Subordinated debt totaled $59.2 million as of December 31, 2021, consisting of $60.0 million in principal issued on April 6, 2021, net of debt issuance cost of $800,000. Notes payable and other borrowings totaled $19.1 million as of December 31, 2021, and is comprised of $13.0 million outstanding on a $20.0 million term note we originated to facilitate the March 2020 redemption of our trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, and a $6.1 million long-term FHLBC advance acquired in our ABC Bank acquisition that matures on February 2, 2026.

Non-GAAP Presentations

Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure our performance, including the presentation of adjusted net income, net interest income and net interest margin on a fully taxable equivalent basis, our efficiency ratio calculations and core net interest margin on a taxable equivalent basis. The net interest margin fully taxable equivalent is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Consistent with industry practice, management has disclosed the efficiency ratio including and excluding certain items, which is discussed in the noninterest expense presentation on page 7. Our core net interest margin on a taxable equivalent basis excludes the impact of our PPP loans.

We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe these measures provide investors with information regarding balance sheet profitability, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this earnings release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this earnings release with other companies' non-GAAP financial measures having the same or similar names. The tables on page 18 provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Cautionary Note Regarding Forward-Looking Statements

This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as "anticipate," "expect," "intend," "believe," "may," "likely," "will," "forecast," "project," "looking forward," "optimistic," "potential," "progress," "prospect," "trend," "momentum" or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the timing of branch sales related to our branch rationalization efforts, the economic outlook, our expectations related to loan growth, pipelines and customer activity, statements regarding our expectations with respect to our recent merger with West Suburban, and statements regarding the potential for expanded margins and future growth. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, (1) the strength of the United States economy in general and the strength of the local economies in which we conduct our operations may be different than expected, including, but not limited to, due to the negative impacts and disruptions resulting from the COVID-19 pandemic on the economies and communities we serve, which has had and may continue to have an adverse impact on our business, operations and performance, and could continue to have a negative impact

on our credit portfolio, share price, borrowers, and on the economy as a whole, both domestically and globally; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action; (4) risks related to future acquisitions, if any, including execution and integration risks; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; (6) changes in interest rates, which may affect our net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities; and (7) with respect to the merger with West Suburban, the possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of other unexpected factors or events. Additional risks and uncertainties are contained in the "Risk Factors" and forward-looking statements disclosure in our most recent Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Conference Call

We will host a call on Thursday, January 27, 2022, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our fourth quarter 2021 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 310578. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on February 3, 2022, by dialing 877-481-4010, using Conference ID: 44105.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

(unaudited)

December 31,

2021

2020

Assets

Cash and due from banks

38,565

24,306

Interest earning deposits with financial institutions

713,542

305,597

Cash and cash equivalents

752,107

329,903

Securities available-for-sale, at fair value

1,692,488

496,178

Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock

13,257

9,917

Loans held-for-sale

4,737

12,611

Loans

3,421,948

2,034,851

Less: allowance for credit losses on loans

44,281

33,855

Net loans

3,377,667

2,000,996

Premises and equipment, net

88,005

45,477

Other real estate owned

2,356

2,474

Mortgage servicing rights, at fair value

7,097

4,224

Goodwill and core deposit intangible

102,636

20,781

Bank-owned life insurance ("BOLI")

105,300

63,102

Deferred tax assets, net

6,100

8,121

Other assets

60,434

47,053

Total assets

6,212,184

3,040,837

Liabilities

Deposits:

Noninterest bearing demand

1,428,055

909,505

Interest bearing:

Savings, NOW, and money market

3,534,367

1,202,134

Time

503,810

425,434

Total deposits

5,466,232

2,537,073

Securities sold under repurchase agreements

50,337

66,980

Junior subordinated debentures

25,773

Subordinated debentures

59,212

Senior notes

44,480

44,375

Notes payable and other borrowings

19,074

23,393

Other liabilities

45,055

36,156

Total liabilities

5,710,163

2,733,750

Stockholders' Equity

Common stock

44,705

34,957

Additional paid-in capital

202,443

122,212

Retained earnings

252,005

236,579

Accumulated other comprehensive income

8,768

14,762

Treasury stock

(5,900)

(101,423)

Total stockholders' equity

502,021

307,087

Total liabilities and stockholders' equity

6,212,184

3,040,837

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)

(unaudited)

Three Months Ended December 31,

Year Ended December 31,

2021

2020

2021

2020

Interest and dividend income

Loans, including fees

26,328

22,999

90,665

90,923

Loans held-for-sale

165

306

Securities:

Taxable

2,817

1,458

8,099

6,773

Tax exempt

1,323

1,293

5,174

5,471

Dividends from FHLBC and FRBC stock

114

118

456

484

Interest bearing deposits with financial institutions

224

656

258

Total interest and dividend income

30,839

26,006

105,215

104,215

Interest expense

Savings, NOW, and money market deposits

294

250

961

1,569

Time deposits

271

741

1,510

5,033

Securities sold under repurchase agreements

202

Other short-term borrowings

179

Junior subordinated debentures

283

1,133

2,215

Subordinated debentures

546

1,610

Senior notes

673

2,692

Notes payable and other borrowings

108

135

463

574

Total interest expense

2,190

2,129

8,451

12,464

Net interest and dividend income

28,649

23,877

96,764

91,751

Provision for credit losses

12,326

4,326

10,413

Net interest and dividend income after provision for credit losses

16,323

23,877

92,438

81,338

Noninterest income

Wealth management

2,421

2,112

9,333

6,409

Service charges on deposits

1,624

1,344

5,408

5,512

Secondary mortgage fees

210

387

1,044

1,654

Mortgage servicing rights mark to market loss

1,463

(1,260)

1,261

(3,999)

Mortgage servicing income

534

503

2,180

1,950

Net gain on sales of mortgage loans

1,498

3,396

9,300

15,519

Securities (losses) gains, net

(14)

232

(25)

Change in cash surrender value of BOLI

227

291

1,390

1,233

Death benefit realized on BOLI

Card related income

1,579

1,435

6,316

5,532

Other income

1,129

577

2,766

3,645

Total noninterest income

10,671

8,785

39,230

37,487

Noninterest expense

Salaries and employee benefits

18,325

12,701

57,691

49,547

Occupancy, furniture and equipment

6,395

2,259

13,583

8,498

Computer and data processing

3,859

1,335

7,938

5,143

FDIC insurance

371

194

975

597

General bank insurance

360

266

1,214

1,030

Amortization of core deposit intangible

296

120

644

494

Advertising expense

343

298

Card related expense

657

583

2,538

2,195

Legal fees

460

285

1,105

761

Other real estate expense, net

171

146

309

651

Other expense

7,558

3,294

17,461

12,203

Total noninterest expense

38,533

21,253

103,801

81,417

(Loss) income before income taxes

(11,539)

11,409

27,867

37,408

(Benefit from) provision for income taxes

(2,472)

3,362

7,823

9,583

Net (loss) income

(9,067)

8,047

20,044

27,825

Basic earnings per share (GAAP)

(0.27)

0.35

0.66

0.94

Diluted earnings per share (GAAP)

(0.26)

0.34

0.65

0.92

Basic earnings per share including adjusting items

0.37

0.35

1.39

0.94

Diluted earnings per share including adjusting items

0.36

0.34

1.36

0.92

Dividends declared per share

0.05

0.01

0.16

0.04

Ending common shares outstanding

44,461,045

29,328,723

44,461,045

29,328,723

Weighted-average basic shares outstanding

34,015,977

29,370,461

30,208,663

29,623,333

Weighted-average diluted shares outstanding

34,533,323

29,913,030

30,737,862

30,174,072

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)

2020

2021

Assets

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Cash and due from banks

32,549

30,594

31,354

30,086

28,461

29,985

29,760

34,225

Interest earning deposits with financial institutions

27,989

153,532

263,199

275,087

359,576

499,555

523,561

587,721

Cash and cash equivalents

60,538

184,126

294,553

305,173

388,037

529,540

553,321

621,946

Securities available-for-sale, at fair value

475,718

452,708

448,408

481,948

532,230

614,066

663,450

1,032,273

FHLBC and FRBC stock

9,917

11,042

Loans held-for-sale

3,623

13,978

13,384

9,503

8,616

4,860

4,908

4,271

Loans

1,941,760

2,038,082

2,035,584

2,023,238

2,006,157

1,926,105

1,884,788

2,388,746

Less: allowance for credit losses on loans

23,507

30,747

31,518

33,255

34,540

31,024

28,639

34,567

Net loans

1,918,253

2,007,335

2,004,066

1,989,983

1,971,617

1,895,081

1,856,149

2,354,179

Premises and equipment, net

44,613

44,658

44,802

45,382

45,378

44,847

44,451

59,796

Other real estate owned

5,127

5,040

3,087

2,653

2,213

2,053

1,930

1,954

Mortgage servicing rights, at fair value

5,053

4,451

4,645

4,717

4,814

5,499

5,020

5,555

Goodwill and core deposit intangible

21,208

21,084

20,960

20,838

20,719

20,602

20,487

26,087

Bank-owned life insurance ("BOLI")

61,873

61,790

61,897

62,499

63,259

63,633

64,008

78,217

Deferred tax assets, net

9,682

13,511

12,051

9,189

8,228

7,782

6,487

9,273

Other assets

25,156

36,771

37,786

47,143

42,877

40,952

43,032

106,880

Total other assets

172,712

187,305

185,228

192,421

187,488

185,368

185,415

287,762

Total assets

2,640,761

2,855,369

2,955,556

2,988,945

3,097,905

3,238,832

3,273,160

4,311,473

Liabilities

Deposits:

Noninterest bearing demand

676,755

854,324

892,811

903,383

937,039

1,012,163

1,029,705

1,193,387

Interest bearing:

Savings, NOW, and money market

1,025,511

1,097,003

1,156,194

1,184,154

1,237,177

1,301,444

1,341,536

2,098,438

Time

448,763

439,735

417,952

393,297

399,310

359,635

331,482

370,919

Total deposits

2,151,029

2,391,062

2,466,957

2,480,834

2,573,526

2,673,242

2,702,723

3,662,744

Securities sold under repurchase agreements

47,825

45,882

54,313

67,059

82,475

67,737

46,339

47,571

Other short-term borrowings

23,069

8,396

8,204

5,448

Junior subordinated debentures

47,200

25,773

Subordinated debentures

56,081

59,180

59,201

Senior notes

44,284

44,310

44,337

44,363

44,389

44,415

44,441

44,468

Notes payable and other borrowings

14,762

26,551

25,482

24,407

23,330

22,250

21,171

20,090

Other liabilities

28,490

39,613

39,589

39,281

37,801

36,553

53,370

68,314

Total liabilities

2,356,659

2,581,587

2,664,655

2,687,165

2,787,294

2,926,052

2,952,997

3,928,161

Stockholders' equity

Common stock

34,900

34,957

34,958

38,248

Additional paid-in capital

120,829

121,253

121,643

122,045

121,578

120,359

120,857

148,528

Retained earnings

215,467

216,183

224,405

233,920

242,201

251,134

258,944

260,181

Accumulated other comprehensive income

9,131

219

9,305

11,900

14,496

13,971

14,965

10,986

Treasury stock

(96,225)

(98,830)

(99,409)

(101,042)

(102,621)

(107,641)

(109,561)

(74,631)

Total stockholders' equity

284,102

273,782

290,901

301,780

310,611

312,780

320,163

383,312

Total liabilities and stockholders' equity

2,640,761

2,855,369

2,955,556

2,988,945

3,097,905

3,238,832

3,273,160

4,311,473

Total Earning Assets

2,459,007

2,668,217

2,770,492

2,799,693

2,916,496

3,054,503

3,086,624

4,024,053

Total Interest Bearing Liabilities

1,651,414

1,687,650

1,732,255

1,744,501

1,812,454

1,877,336

1,869,922

2,666,460

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per sharedata, unaudited)

2020

2021

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Interest and Dividend Income

Loans, including fees

23,597

22,347

21,980

22,999

22,207

20,815

21,315

26,328

Loans held-for-sale

110

Securities:

Taxable

2,163

1,694

1,458

1,615

1,832

1,835

2,817

Tax exempt

1,455

1,396

1,327

1,293

1,307

1,259

1,285

1,323

Dividends from FHLB and FRBC stock

125

123

118

115

113

114

Interest bearing deposits with financial institutions

137

203

224

Total interest and dividend income

27,451

25,712

25,046

26,006

25,391

24,194

24,791

30,839

Interest Expense

Savings, NOW, and money market deposits

635

385

299

250

241

217

209

294

Time deposits

1,766

1,442

1,084

741

500

409

330

271

Securities sold under repurchase agreements

116

Other short-term borrowings

109

Junior subordinated debentures

1,364

283

285

283

280

284

286

283

Subordinated debentures

517

547

546

Senior notes

673

Notes payable and other borrowings

130

165

144

135

123

119

113

108

Total interest expense

4,793

3,005

2,537

2,129

1,848

2,240

2,173

2,190

Net interest and dividend income

22,658

22,707

22,509

23,877

23,543

21,954

22,618

28,649

Provision for (release of) credit losses

7,984

2,129

300

(3,000)

(3,500)

(1,500)

12,326

Net interest and dividend income after provision for (release of) credit losses

14,674

20,578

22,209

23,877

26,543

25,454

24,118

16,323

Noninterest Income

Wealth management

1,906

1,998

1,889

2,112

2,151

2,389

2,372

2,421

Service charges on deposits

1,726

1,120

1,322

1,344

1,195

1,221

1,368

1,624

Secondary mortgage fees

270

505

492

387

322

272

240

210

Mortgage servicing rights mark to market (loss) gain

(2,134)

(445)

(160)

(1,260)

1,113

(1,033)

(282)

1,463

Mortgage servicing income

468

458

521

503

567

507

572

534

Net gain on sales of mortgage loans

2,246

4,631

5,246

3,396

3,721

1,895

2,186

1,498

Securities (losses) gains, net

(24)

(1)

244

(14)

Change in cash surrender value of BOLI

(49)

532

459

291

334

423

406

227

Death benefit realized on BOLI

(2)

Card related income

1,287

1,311

1,499

1,435

1,447

1,666

1,624

1,579

Other income

626

526

420

577

450

577

610

1,129

Total noninterest income

6,322

10,695

11,685

8,785

11,300

7,919

9,340

10,671

Noninterest Expense

Salaries and employee benefits

12,918

11,342

12,586

12,701

13,506

12,896

12,964

18,325

Occupancy, furniture and equipment

2,301

1,935

2,003

2,259

2,467

2,303

2,418

6,395

Computer and data processing

1,335

1,247

1,226

1,335

1,298

1,304

1,477

3,859

FDIC insurance

155

191

194

201

192

211

371

General bank insurance

246

237

281

266

276

277

301

360

Amortization of core deposit intangible

128

124

122

120

115

113

296

Advertising expense

109

107

Card related expense

532

514

566

583

593

626

662

657

Legal fees

131

176

169

285

135

455

460

Other real estate expense, net

237

143

125

146

171

Other expense

3,008

2,966

2,935

3,294

3,126

3,381

3,396

7,558

Total noninterest expense

21,002

18,896

20,266

21,253

21,738

21,401

22,129

38,533

(Loss) income before income taxes

(6)

12,377

13,628

11,409

16,105

11,972

11,329

(11,539)

(Benefit from) provision for income taxes

(281)

3,139

3,363

3,362

4,226

3,152

2,917

(2,472)

Net income (loss)

275

9,238

10,265

8,047

11,879

8,820

8,412

(9,067)

Basic earnings per share (GAAP)

0.01

0.31

0.35

0.27

0.41

0.30

(0.27)

Diluted earnings per share (GAAP)

0.01

0.31

0.34

0.27

0.40

0.30

0.29

(0.26)

Basic earnings per share including adjusting items

0.01

0.31

0.35

0.27

0.41

0.30

0.37

Diluted earnings per share including adjusting items

0.01

0.31

0.34

0.27

0.40

0.30

0.36

Dividends paid per share

0.01

0.05

Reconciliation of Non-GAAP Financial Measures

The tables below provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the periods indicated. Dollar amounts below in thousands:

Quarters Ended

Year Ended

December 31,

September 30,

December 31,

2021

2020

2021

2020

Net Income

(Loss) income before income taxes (GAAP)

(11,539)

11,329

11,409

27,867

37,408

Pre-tax income adjustments:

Provision for credit losses - Day Two

14,625

Merger-related costs

12,765

425

13,190

Adjusted net income before taxes

15,851

11,754

11,409

55,682

37,408

Taxes on adjusted net income

3,396

3,026

3,362

13,800

9,583

Adjusted net income

12,455

8,728

8,047

41,882

27,825

Basic earnings per share (GAAP)

(0.27)

0.30

0.27

0.66

0.94

Diluted earnings per share (GAAP)

(0.26)

0.29

0.27

0.65

0.92

Basic earnings per share including adjusting items

0.37

0.30

0.27

1.39

0.94

Diluted earnings per share including adjusting items

0.36

0.30

0.27

1.36

0.92

Quarters Ended

Year Ended

December 31,

September 30,

December 31,

2021

2020

2021

2020

Net Interest Margin

Interest income (GAAP)

30,839

24,791

26,006

105,215

104,215

Taxable-equivalent adjustment:

Loans

Securities

351

342

344

1,375

1,455

Interest income (TE)

31,197

25,137

26,353

106,608

105,682

Interest expense (GAAP)

2,190

2,173

2,129

8,451

12,464

Net interest income (TE)

29,007

22,964

24,224

98,157

93,218

Paycheck Protection Program ("PPP") loan - interest and net fee income

435

1,138

1,777

3,146

3,116

Net interest income (TE) - excluding PPP loans

28,572

21,826

22,447

95,011

90,102

Net interest income (GAAP)

28,649

22,618

23,877

96,764

91,751

Average interest earning assets

4,024,053

3,086,624

2,799,693

3,272,951

2,674,957

Average PPP loans

30,729

53,562

111,491

67,008

83,251

Average interest earning assets, excluding PPP loans

3,993,324

3,033,062

2,688,202

3,205,943

2,591,706

Net interest margin (GAAP)

2.82

2.91

3.39

2.96

3.43

Net interest margin (TE)

2.86

2.95

3.44

3.00

3.48

Core net interest margin (TE - excluding PPP loans)

2.84

2.85

3.32

2.96

3.48

GAAP

Non-GAAP

Three Months Ended

December 31,

September 30,

December 31,

September 30,

December 31,

2021

2020

2021

2020

Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense

38,533

22,129

21,253

38,533

22,129

21,253

Less amortization of core deposit

296

113

120

296

113

120

Less other real estate expense, net

171

146

171

146

Less merger related costs

N/A

12,765

425

Noninterest expense less adjustments

38,066

21,991

20,987

25,301

21,566

20,987

Net interest income

28,649

22,618

23,877

28,649

22,618

23,877

Taxable-equivalent adjustment:

Loans

N/A

Securities

N/A

351

342

344

Net interest income including adjustments

28,649

22,618

23,877

29,007

22,964

24,224

Noninterest income

10,671

9,340

8,785

10,671

9,340

8,785

Less death benefit related to BOLI

Less securities (losses) gains, net

(14)

244

(14)

244

Less MSRs mark to market gain (loss)

1,463

(282)

(1,260)

1,463

(282)

(1,260)

Taxable-equivalent adjustment:

Change in cash surrender value of BOLI

N/A

108

Noninterest income (less) / including adjustments

9,222

9,378

10,045

9,283

9,486

10,122

Net interest income including adjustments plus noninterest income (less) / including adjustments

37,871

31,996

33,922

38,290

32,450

34,346

Efficiency ratio / Adjusted efficiency ratio

100.51

68.73

61.87

66.08

66.46

61.10

Disclaimer

Old Second Bancorp Inc. published this content on 26 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 January 2022 21:33:04 UTC.